THE FEDERAL BUDGET: The Overview; Mood of Compromise Prevails on Election-Year Budget

By ROBERT PEAR,

Published: January 31, 1992

WASHINGTON, Jan. 30—
President Bush's budget director, Richard G. Darman, went to Capitol Hill today to begin the yearly ritual of negotiating with Congress over the President's tax and spending proposals, amid indications that both sides might be willing to strike some compromises in this election year.

Several Democrats welcomed Mr. Bush's proposal to impose some type of overall limit on the growth of Federal benefit programs, including Medicare and Medicaid. Mr. Darman indicated that the Administration would consider some changes in the budget agreement of 1990, which severely restricts the ability of Congress to shift money from one category of spending to another.

Nonetheless, Mr. Darman said the Administration would firmly resist Congressional efforts to use savings from the military budget to pay for domestic programs, as many Democrats want to do. Some Democrats say the money cut from the Pentagon budget should be used for social programs and to help workers, cities and counties adversely affected by the closing of military bases and by cutbacks in production of warplanes, missiles, submarines and other weapons. Tax Cut Possibility

The budget director said Mr. Bush was prepared, under certain conditions, to use military savings to pay for a cut in taxes for families with children.

Mr. Darman's testimony today before the House Budget Committee tended to confirm the impression of many lawmakers that the Administration would be drawn into renegotiating the 1990 agreement. Once such negotiations begin, neither Mr. Bush nor Mr. Darman could control their scope or outcome, lawmakers say.

The agreement, which set a statutory framework for national decisions on taxes and spending, was supposed to last five years. But many members of Congress and economists have concluded that it needs to be revised as a result of the reduced military threat to the United States since the collapse of Communism.

At the hearing today, Mr. Darman made a spirited defense of the President's budget request for the fiscal year 1993, which begins Oct. 1, and seemed to enjoy sparring with members of Congress. He found bipartisan interest in Mr. Bush's proposal to impose, for the first time, an overall limit on Federal spending for rapidly growing benefit programs like Medicare, Medicaid and food stamps.

Representative Leon E. Panetta, a California Democrat who is chairman of the committee, welcomed the proposal as a means of "achieving better control" over such benefit programs. Congress sets eligibility criteria and benefit levels for those programs, but does not directly control the total amounts spent each year; anyone who meets the eligibility criteria can obtain benefits.

Benefit payments accounted for 28 percent of all Federal spending in 1965, when Medicare and Medicaid were created. They now account for slightly more than 50 percent.

Referring to such outlays, Mr. Darman said, "The big gaping hole in the current budget enforcement system is the inherited structure of mandatory spending programs that just continues to grow without control or annual review, and without having to come before Congress or the President."

The ranking Republican on the Senate Budget Committee, Pete V. Domenici of New Mexico, also welcomed the proposal for "an enforceable cap" on Federal spending for benefit programs. "We never have been able to get a handle on them," he said.

Lawmakers of both parties expressed concern that Congress and the Administration would try to outdo each other in cutting taxes in this election year, with the result that future budget deficits would be even higher than now projected.

Mr. Panetta said Mr. Bush's budget included a long list of proposed tax cuts and would tempt Congress to enter "a bidding war of the type we saw in 1981." In that year, Congress approved President Ronald Reagan's proposals to cut individual income tax rates and business taxes in an effort to stimulate economic growth.

The House majority leader, Representative Richard A. Gephardt, Democrat of Missouri, said, "There should not be a bidding war over the tax and recovery package" this year.

Mr. Darman agreed that there was a political temptation to woo voters in an election year, and he said, "We ought to do everything we can to prevent that bidding war from breaking out." Partisan Struggle Foreseen

Despite the amicable atmosphere of today's hearing, many lawmakers say they expect partisan political warfare over the budget, as Democratic and Republican members of Congress struggle for advantage.

"We as Democrats are committed to prompt passage of an economic recovery program," Mr. Gephardt said. "Democrats will not obstruct, but we will try to improve the President's package. Democrats will cooperate, but we will not fold. We will provide a clear distinction between the allegiances and ambitions of the two political parties."

In a separate move, the White House today disclosed details of its plan for "a 90-day moratorium on any new Federal regulations that could hinder growth" of the nation's economy. Mr. Bush has asked the head of each Federal agency to identify rules that can be suspended, revised or repealed. Vice President Dan Quayle, as head of Mr. Bush's Council on Competitiveness, will have a central role in reviewing such regulations to determine if the costs outweigh the benefits.

The Vice President today invited businesses to suggest rules that should be changed or repealed. "Now's your chance," he told a group of lobbyists for companies regulated by the Government. "Come and tell us what regulations and rules are burdening the private sector. To the overzealous regulators: you've met the enemy and it's called the Competitiveness Council."

Mr. Bush established the council in 1989 to find ways of making the United States more competitive in international markets. The panel has concluded that Federal officials, including some appointed by Mr. Bush, impose too many regulations on American businesses.

Gary D. Bass, executive director of O.M.B. Watch, a consumer group that monitors the Federal Office of Management and Budget, said, "The 90-day moratorium is essentially a stop-work order" to regulatory agencies. He said it could endanger public health and safety by blocking rules that were to be issued by the Environmental Protection Agency, the Food and Drug Administration and the Occupational Saftey and Health Administration.

Photo: Richard G. Darman, right, the budget director, conferring with Barry Anderson, assistant budget director, holding a briefing book on the budget, before Mr. Darman negotiated with the House Budget Committee over the President's tax and spending proposals yesterday in Washington. (Michael Geissinger for The New York Times)